1
Who came first: Politicians or academic economists?i
Johan Lönnroth (University of Göteborg)
Introduction
The ideas of practical men, both when they are right and when they are wrong,
are more powerful than is commonly understood. Indeed the world is ruled by
little else. Economists and political philosophers, who see themselves quite
exempt from any ideological influence, are usually the slaves of somebody from
the economic or political elite.
No. This was not Keynes. It was me turning him upside down. Of course I
pressed my point, as did Keynes. But I claim that it is somewhat more natural to
consider that men (and they were almost always men) who had to take action in
acute situations are forced to try new ideas more than people working with
“normal science” (Kuhn) in a “free” intellectual surrounding.
Were the new “Keynesian” or “Stockholm School” ideas important in forming
the economic policies after the 1932 election in Sweden? Were those policies of
any importance for the upturn the following years compared to the devaluation
of the crown after September 1931? Which impact had the ideas of an active
labour market policy within the Swedish workers movement on the successful
years for the Swedish economy in the 1950s and the first half of the 1960s? Was
it good or bad that Swedish politicians waited longer than their colleagues in
other countries to go over to a monetarist anti inflation policy? Did the
center/right government find the right level of expansionism in the crisis of 2008
and 2009? I do not know. This text is not dealing with such difficult questions,
only with who was first to implement new macroeconomic policy ideas that later
were to be accepted in international mainstream economics.
I have chosen three paradigmatic shifts in Sweden, all of them connected to
economic – unemployment and/or inflation – crises.: The so called New
Economics in the 1930s, the forming of the Swedish labour market policies in
the 1950s and 1960s and the gradual shift from Keynesianism to monetarism
during the latest three decades of the 20th century. I also make some comments
on the partial return to Keynesian ideas in the recent financial crisis, but what
happened then is too early to evaluate.
2
Academic people, and especially so the writers of textbooks in economics, have
tended to focus on the role of economists in those paradigmatic shifts. In most
historical texts on the shift in Sweden from neoclassissism to Keynesianism and
the Swedish Model, the main figures have been Knut Wicksell, Gustav Cassel
and Eli Heckscher in the older generation, the so called Stockholm School, with
Bertil Ohlin, Gunnar Myrdal and others and also Gösta Rehn and Rudolf
Meidner in the younger generation.ii And the later shift from Keynesianism to
monetarism is also mostly described as a battle between an older and a younger
generation of academic economists, and this regardless of whether the writer is
positive or negative to the shift.iii
Political scientists are for natural reasons more interested than economists in the
politicians. But also among them, the politicians have mostly been given the role
of receivers and implementers of economic ideas coming from academic expert
economists more than as initiators.iv I cannot claim to have the total overview of
this wide field of study in economics, political science and economic history.
But I believe that my main idea in this text – that politicians and economists
working in political institutions more than academic economists were
frontrunners in economic political thinking - is rather unusual.
Who introduced the new economics of the 1930s?
Gradually around the end of the 1920s and the early 1930s the ideas later
connected to Keynes’ name and the “Stockholm School” were fully recognized
and established in Sweden. Karl Gustav Landgren in1960 summarized his
dissertation on the introduction of those new ideas in Sweden:
The strange result has been reached, that an amateur economist, Ernst Wigforss, had a greater
sensibility to the new doctrine than the professional economists. (Det egendomliga resultat har
vunnits, att en nationalekonomisk amatör, Ernst Wigforss, visade sig ha finare känslighet för
den nya läran än de professionella nationalekonomerna.)v
Landgren showed that Ernst Wigforss, social democratic minister of finance
1932 - 1949, had studied the British debate on active monetary and fiscal
policies against unemployment already in the 1920s while leading Swedish
economists in the older generation such as Gösta Bagge, Gustav Cassel and Eli
Heckscher still believed that lower wages would be the only really efficient
remedy against unemployment. Landgren also claimed that in the beginning
Erik Lindahl and Gunnar Myrdal never understood the new ideas. According to
Landgren, Ohlin was the only younger generation “Stockholm School”
economist who had absorbed the new ideas at an early stage, but not before
Wigforss already had presented the ideas in programmes and pamphlets before
the election in 1932.
Landgren’s dissertation was followed by an intense debate. In Ekonomisk
3
Tidskrift 1960 a number of reactions were published. Tor Fernholm, the faculty
opponent to the dissertation, criticized Landgren for having treated a number of
pioneering (“banbrytande”) Swedish scientists in an ill-informed and unfair
manner. Fernholm also claimed that Landgren’s interpretation of Keynes was
based on an oversimplified macro model. But he also praised the dissertation for
having started an important debate.vi
Erik Lundberg, who was a member of the ’Stockholm School’ and one of the
targets of Landgren’s critique, did also criticize some parts of Landgren’s
dissertation, but he nevertheless confessed:
Certainly there was an unbecoming pride among the Swedish economists of the time when we
– I count my insignificant self to the company – welcomed Keynes and his epigones to a table
with higher insights, on which theoretical findings were served, to a big part made by
Wicksell nearly 40 years ago. This attitude was common in Stockholm in the 30s – ’for us the
Keynesian perspective means nothing new, and when it really is new, it is wrong’... (Nog
fanns det oklädsam högfärd bland den tidens svenska nationalekonomer, när vi – jag räknar
min egen obetydlighet till sällskapet – hälsade Keynes och hans epigoner välkomna till ett
bord med högre insikt på vilket det serverades teoretiska rön, som Wicksell till stor del gjort
för nära 40 år sedan. Denna attityd, som var vanlig i Stockholm på 30-talet – ’för oss innebär
det Keynesianska synsättet inget nytt och där det verkligen är nytt är det galet’…)vii
Ernst Wigforss, Landgren’s hero, was also asked to contribute to the debate in
Ekonomisk Tidskrift. He wanted to show his readers that before the crisis of the
1930s not only social democrats, but also practical men from the business
community, had advocated an active policy against unemployment. He referred
to an article in New Statesman about a petition in 1923 to the British
conservative government from English entrepreneurs in ‘The Industrial Group’,
who urges the Government to embark without delay on a big programme for the
development of home resources. According to Wigforss, this group were
“probably hardly at all influenced by academic economists and even less by
socialist writers” (sannolikt föga tillgängliga för påverkan från akademiska
nationalekonomer och ännu mindre från socialistiska skribenter).viii
Wigforss also asked himself and his readers what difference it would have made
if the achievements of the English liberals in the 1920s had not been noticed
within Swedish social democracy: “Can we believe that the party had followed
the same road and at the same time? For me the answer could only be yes.
Knowledge of the correct line was not lacking. Compulsion to act would have
come with the severe crisis. (Kan man tro att partiet skulle ha slagit in på samma
väg och vid samma tid? För min del kan svaret inte bli annat än ja. Kunskap om
den rätta linjen saknades inte. Tvånget att handla skulle ha kommit med den
svåra krisen.)”ix
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Already in his memoirs (1953) Wigforss had answered his own question in the
same way. There he also wrote about the professional economists in the 1920s
and the beginning of the 1930s:
the conviction to have a coherent theoretical motivation and an impressive scientific support
for the politics then called bourgeois was evident. (övertygelsen att bakom sig ha en
sammanhängande teoretisk motivering och ett imponerande vetenskapligt stöd för den politik
som kallades borgerlig var omisskännlig).x
A common belief seems to prevail among mainstream economists that Marxism
constituted an obstacle in the social democratic search for a practical economic
policy. Take Ton Notermans as an example:
Unable to indentify a viable policy alternative, many social democrats relapsed into a sort of
Marxist fatalism, which postponed all practical policies for the improvement of the lot of the
working class to that mythical time when the socialist revolution might arrive.xi
Therefore it can be worth mentioning that Wigforss had not only studied the
British liberals, he was also one of the best schooled introducers of Marxist
thinking in Sweden. In my opinion, the role of at least some sorts of Marxist
thinking might instead foster practical policies. Keynesianism was perhaps
harder to understand within the classless neoclassical paradigm, compared to a
Marxist understanding of how different classes should react to the new policies
of the 1930s. Wigforss was an important promoter of the class compromise in
Saltsjöbaden 1938 (see below) and his Marxist background might have
contributed to his understanding of the dangers and possibilities also then.
Landgren’s dissertation and the ensuing debate came at a time when the
Keynesian paradigm was firmly established both in Swedish politics and
academic economics. Since then a number of authors have modulated and
corrected details in the overall picture given by Landgren. Benny Carlsson
(1993) for example gives a more positive picture of Cassel and Heckscher and
calls attention to that their critique heralded what later was to come with Milton
Friedman and Monetarism. But Landgren’s overall conclusion still holds. The
paradigmatic shift in academic economics appeared like Minerva’s owl after the
shift in practical politics.xii
Who created the Swedish Model?
Today I believe that there is a rather general agreement, at least among
professional macro economists, that the 1931 devaluation of the Swedish crown
and the general development of the international business cycle were much more
important than the new social democratic macroeconomic policies after the
election 1932. The important shift came more on the ideological level. Social
Democracy abandoned the revolutionary ‘big perspective’ and adopted the
5
‘small perspective’: To reform capitalism in the interest of all inhabitants of
‘The People’s Home’, a concept used by the prime minister Per Albin Hansson
to stand for a society without class contradictions.xiii
‘The Saltsjöbaden Agreement”, which took place in 1938, constituted the most
important manifestation of this ideological shift: There SAF (Svenska
Arbetsgivareföreningen), the Swedish capitalist employers organization, and LO
(Landsorganisationen), the Swedish trade union confederation, agreed upon a
series of rules for the relations between business and labor. In practice it meant
that SAF accepted strong trade unions and a strong collective bargaining system
and LO in return accepted capitalist power in the companies, new technique and
structural change. Wigforss was also now an important player and the agreement
was followed by the more progressive capitalists accepting a strong public
sector and generous social insurance systems.
Gunnar Myrdal and many others world wide, including Keynes and his British
and US followers, feared that a depression would follow directly after the war as
it did after the First World War. In a pamphlet published in 1944 Myrdal wrote
that even if the inflation problem will be more or less permanent in a society
with full employment:
we social democrats claim that it is possible to uphold full employment without a resulting
inflation. (hävdar vi socialdemokrater att det är möjligt att uppehålla full sysselsättning utan
att detta behöver leda till inflation.)xiv
But Myrdal had no concrete ideas on how this full employment and low
inflation policy should be formed. An unexpected high demand for Swedish
export after the war soon gave the economic political debate a new direction
with a focus on the problem how to prevent inflation without creating
unemployment. The two LO economists Gösta Rehn and Rudolf Meidner tried
to give a solution: First, fiscal policy was to be restrictive in order to hinder
inflated profits and wage drift. Second LO should follow the solidarity wage
principle, equal pay for equal work across sectors, by means of a centralized
wage policy. This policy raised the reservation wage of low productivity sectors,
which in turn forced inefficient firms either to increase productivity or to go
bankrupt. The third element of the model, an active labour-market policy, was
designed to promote labor mobility through education, relocation, and
investment programs. Meidner said:
Labour market policy should be the means by which to remove hindrances in a market
economy in accordance with an only dreamt of classical economic theory.xv
The LO leader Arne Geijer said to Meidner when he delivered a text dealing
with the solidaristic wage principle:
6
This is very good, but you must strengthen this policy when people lose their jobs. You must
invent something more here. (Det är jättebra det här men ni måste förstärka den här politiken
när man blir av med jobben. Ni får hitta på något mer här.)
Meidner later said that in this moment, the actual labor market policy was
born.xvi
The new ideas were expressed in a report to the 1951 LO congress. According to
Meidner, this was a practical political program for action with some theoretical
perspectives, rather than an economic model. (“Rapporten till LO-kongressen
1951 var ett ekonomiskt-politiskt handlingsprogram av praktiskt slag med vissa
teoretiska perspektiv snarare än en ekonomisk modell”).xvii
Rehn’s & Meidner’s & LO’s propositions were criticized by leading academic
economists. Some of them - Erik Lundberg especially - argued that the leveling
out of wages could lead to an inefficient resource allocation. Bent Hansen, one
of the founders of the new formalized theory of fiscal policy, raised the
objection that the solidarity wage policy would lead to high unemployment in
low productivity sectors (for example textile and shoe industry meeting hard
competition from Southern Europe) and in low productivity regions (for
example parts of the North of Sweden).xviii
The combination of Keynesian macroeconomics and labor market policies
following the Rehn & Meidner model was to be called the Swedish Model. It
was generally accepted both politically and in academia in the 1960s. Also in
this case individuals working near or in the workers movement were leading the
way, while most of the leading academic economists were hesitant. Today it is
my impression that most economists, rightly or wrongly, accept that the Swedish
Model – at least for a period – on the whole was a success story. Ton Notermans
writes in a summary:
The main argument of this study is that rather than being determined by the political strength
of social democratic parties, the success or failure of the social democratic program depends
crucially on the institutional and political ability to combine growth with a fair degree of price
stability. Economic growth was required to achieve the goals of full employment and a well
developed welfare state. However, it could only be brought about by an expansionary
macroeconomic regime. Macroeconomic policies, however, can concentrate on growth only if
labor market institutions can assume a major part of the responsibility for keeping inflation
down.xix
From Keynes to Chikago
In the end of the 1960s and in the beginning of the 1970s, the Swedish economy
met a number of stabilization policy problems connected to the turbulence in the
global economy. The minister of finance Gunnar Sträng (a former farm worker)
7
was convinced that rising inflation and balance of trade deficits should be met
with a tight fiscal and monetary policy. In 1970 he put a brake on bank credits
and raised payroll taxes.xx
Unemployment rose from 2 to 3 percent. The center/right political opposition
named the credit policy of 1970 “idiotstoppet” and the period 1970-72 ”the lost
years”. Sträng was attacked from not only the opposition but also from the
leading economists. When he presented the Government budget in
Nationalekonomiska Föreningen (the Swedish economists association) 15.1
1973, Erik Dahmén criticized him for his exaggerated anxiety for budget deficits
and for that
the pure financial bookkeeping of the state, unfortunately again now coming almost in focus,
in a ghostlike manner reminds us of the perspectives of the 1920s. (det rent statsfinansiella
bokhålleriet, som tyvärr numera åter kommit nästan i centrum och spöklikt erinrar om 20talets synsätt.)xxi
In the same discussion Assar Lindbeck said:
The expected supply of idle factors of production decides if there is room for an expansionary
fiscal policy or not, and a budget surplus or a budget deficit says not a bit about that… To
look at the size of a budget deficit instead of the general economic situation is as if a drunken
person looks at a thermometer, finds it showing 24 and exclaims: ‘Hell, is it already
midnight!’ (Det är den förväntade tillgången på lediga produktionsfaktorer som avgör, om det
finns utrymme för en expansiv finanspolitik eller inte, och om tillgången på lediga
produktionsfaktorer säger budgetöverskott eller budgetunderskott inte ett dugg... Att se på
budgetunderskottets storlek i stället för på det samhällsekonomiska läget är som när en
berusad person går fram till en termometer och finner att den visar på 24 och utropar: 'Å fan,
är det redan midnatt').xxii
This critique gave arguments to politicians in and outside the government who
were opposed to Sträng’s restrictive policies and it gave support to the policies
adopted to meet the oil crisis and the international slump in the middle of the
1970s. Before losing the 1976 election, the social democrats economic strategy
had been based on fiscal policies designed to keep domestic demand high, in
order to prevent the oil price increases from reducing domestic economic
activity. These so-called ‘bridging policy’ (överbryggningspolitik) was
continued by the center-right governments after the election 1976.xxiii
Much later Sträng’s policy of 1970-72 was to be reassessed. Hans Tson
Söderström wrote about it in 2004:
8
In an international comparison the policy must be seen as successful. Our relative inflation
rate was pressed down with as much as 4 percent, our relative production costs was improved
with around 6 percent and our relative balance of current account was strengthened with 2 à 3
percent of GDP. (I ett internationellt jämförande perspektiv måste emellertid politiken
betraktas som framgångsrik. Vår relativa inflationstakt pressades ned med hela 4 procent, vårt
relativa kostnadsläge förbättrades med omkring 6 procent och vår relativa bytesbalans
förstärktes med 2 à 3 procentenheter av BNP.)xxiv
When a discussion draft for Wage-Earners’ Funds was presented in 1975,
Rudolf Meidner said that the labor movement now had to make a choice:
Either we move against capital or capital will move against us. (Antingen rör vi oss mot
kapitalet eller kommer kapitalet att roar sig mot oss.)xxv
My interpretation of this is that now that Keynesianism and the Swedish Model
were under attack from growing financial markets, the labor movement had to
see to it that capital remained in Sweden or we had to adapt to new policies so
that Sweden would be able to attract mobile capital. The Funds could also be
seen as an offer: If the workers get a part of capitalist ownership, the trade
unions will take responsibility for competitive wages and the social democratic
state will form capital-friendly economic policies.
In the beginning of the 1980s the Swedish economy was in a deep crisis. The
manufacturing industry had been stagnant for almost a decade. The state’s
budget deficit was about 12 to 13 percent of GDP. In the Social Democratic
economic program “The Future for Sweden: Measures to Guide Sweden out of
Crisis” from 1981 the same sort of idea as Meidner’s in 1975 – the Funds as a
condition for responsible behavior - was expressed like this: “one important
prerequisite for a recovery policy is that Wage-Earners Funds are initiated.” xxvi
Among the leading academic economists as well as among politicians, the
monetarist paradigm (in a broad definition) gradually crowded out
Keynesianism in the first half of the1980s. The main difference between the
politicians and the economists was that the politicians often concealed their
changed opinions behind an anti-monetarist rhetoric. The wage-earners’ funds
were in 1983 watered down to rather harmless state owned pension funds and
their impact on the real economy was small. But they probably played a certain
role as a leftist alibi to legitimate that LO accepted that the collective bargaining
system was decentralized beginning of 1983. Also the social democratic
government’s and especially the finance minister Kjell-Olof Feldt’s introduction
of norms for the inflation rate (1983) and the deregulation of the credit (1985)
and foreign exchange markets (1986-89) might have been more easy to defend
against a left opposition because of the ideological wage-earners’ funds battle.
9
The combined effects of the deregulation of the credit market, extremely high
marginal taxes, generous rules for interest on debts tax deductions and the
government’s failure to tighten its fiscal policy was an overheated economy
followed by a deep financial crisis. During this period the academic economists
on the whole were forerunners in the demand for a shift towards monetarist
perspectives while most of the politicians were more hesitant. Feldt in vain tried
to persuade his party to adopt a more restrictive fiscal policy in the end of the
1980s. One of his arguments was that the monetary policy of the central bank
had to concentrate on holding the exchange rate fixed. He had to explain to the
director of the central bank Bengt Dennis, that his “political resources” were not
enough for more than the lowering of marginal taxes in a big reform of the tax
system implemented in 1990. xxvii
As a part of a crisis policy package, the social democratic party in October 1990
made public that it had changed its mind and that it now wanted Sweden to join
the EU. The same government in a budget document in spring 1991 announced
that a low inflation now was the main operative target for Swedish economic
policy. That occurred later than in almost all other capitalist countries. And in
1993, the central bank adopted a two percent inflation rate target.
During the 1990s, both under a right/center government 1991-94 and social
democratic governments 1994 – 2006, a number of institutional reforms in a
monetarist spirit (still in a broad sense) were decided upon with broad majorities
in the parliament: deregulations of postal service, telecom, electricity and
railroads. Privatization and a competitive spirit spread to the educational,
health/elderly and child care systems. A new state budget system was introduced
now with expenditure caps. So was a new pension system with an element of
private funds, while a central bank reform was following the demand from the
EU (Sweden became a member in 1995). xxviii
In one of the leading textbooks used in Swedish universities, the authors
summarize the situation in 2005: ”Now, in the beginning of the 2000s, the most
realistic prognosis seems to be that we are facing a world with relatively free
mobility of capital, technology, goods and services over national borders, where
stabilization policies are directed to the maintenance of low inflation. (Nu, i
början av 2000-talet, förefaller den kanske mest realistiska prognosen vara att vi
står inför en värld med relativt fria rörelser över gränserna av kapital, teknologi,
varor och tjänster, där stabiliseringspolitiken är inriktad på … låg inflation.)xxix
And back to Keynes
During and after the global financial crisis in 2007 – 2009, opinions once again
seem to have changed among leading economic politicians and economists in
10
Sweden as well as internationally. It is too early to evaluate these recent events,
but my impression is that politicians so far also this time reacted a little earlier
than the economists.
The Swedish Government stated in a bill enacted on 10.4 2008:
The restrictive direction of the finance policy that we applied to prevent an overheated
economy and which increased the structural surplus in public finance, the Government now
intends to adjust in a less restrictive direction within the limits of a responsible policy. (Den
åtstramande inriktning som finanspolitiken har haft för att förhindra överhettning, och som
ökat de strukturella överskotten i de offentliga finanserna, avser regeringen att justera mot en
något mindre åtstramande riktning inom ramen för en fortsatt ansvarsfull politik.)xxx
One month later, the The Swedish Fiscal Policy Council (Finanspolitiska Rådet)
agreed:
On the whole our assessment coincides with the Government’s… The Government should in
the present situation primarily consider reforms with positive structural effects and which
should not be too costly in a short perspective. (Vår bedömning sammanfaller i huvudsak med
regeringens... Regeringen bör i nuläget främst överväga reformer som kan väntas ha
gynnsamma struktureffekter och inte är alltför kostsamma i det kortsiktiga perspektivet.) xxxi
The Executive Board of the Swedish Central bank (Riksbanken), who had
gradually raised its key interest rate, the repo rent (reporäntan), from 1.5 percent
in the beginning of 2006 to 4.25 percent in spring 2008, in a unanimous decision
2.7 2008 raised it again 2.7 2008 to 4.5 percent. In a press release the decision
was explained:
With a higher repo rent, the rate of inflation will decrease, and it will in a two years time
perspective be close to its 2 percent target. The GDP gap will grow, but it is expected to be
normal at the end of the period. (Med en högre reporänta avtar inflationen och är på ett par
års sikt nära målet 2 procent. Resursutnyttjandet faller men väntas vara normalt i slutet av
prognosperioden.)xxxii
As late as 3.9 2008 a divided board of the Central Bank raised the repo rent once
more to 4.75 percent. According to the minutes from the Executive Board
meeting, the chairman of the board, Stefan Ingves, justified the decision:
To summarise, Mr Ingves said that it is appropriate to raise the repo rate by 0.25 percentage
points. An increase will make it clear that the Riksbank takes its inflation target very
seriously. Mr Ingves pointed out that he wants to see a reduction in inflation and inflation
expectations before easing monetary policy. A higher repo rate could also provide some
support to the krona, which is important with regard to dampening external inflationary
impulses.xxxiii
11
Nine days after this, 12.9 2008, the Government decided upon the budget bill for
2009. There it was said:
The weaker development to be seen now entails… that the risk for a fast rising inflation rate
the coming years decreases. Therefore … there is room for a somewhat more expansive
finance policy … in the order of the magnitude 1 percent of GDP... (Den svagare
konjunkturutveckling som nu förutses medför … att risken för snabbt stigande inhemsk
inflation de kommande åren minskar. Detta gör … att det finns utrymme för en något mer
expansiv finanspolitik …på cirka 1 procent av BNP 2009...)xxxiv
In the end of 2008 and during 2009 several economists including them in the
Fiscal Policy Council criticized the Government and its finance minister Anders
Borg and claimed that the fiscal policy was not enough expansionist. In a lecture
in December 2009, the chairman of the Council Lars Calmfors said:
Before the current crisis, there was a consensus that monetary policy should be the prime
stabilization policy tool and discretionary fiscal policy should be avoided. If fiscal policy
were to be used, policy makers should rely on the automatic stabilizers.... Policy makers
should… be given credit for rapidly abandoning conventional wisdom in the current crisis. In
the autumn of 2008 it was very quickly realized that the situation was so extraordinary that
normal principles were no longer applicable.xxxv
And in a debate in Nationalekonomiska Föreningen (The Swedish Economists
association) 12.1 2010 Calmfors also said:
I can only see that the inflation goal regime of today has come to the end of the road. (jag kan
inte se annat än att nuvarande inflationsmålsregim har kommit till vägs ände.)xxxvi
When this is written in March 2011 Sweden had an extremely high growth rate
for a number of months. And the critique against the fiscal policy no longer is
heard.
Were the politicians wiser?
Lars Jonung in 1999 summarized his study of Swedish stabilization policy 19751995 as a learning process for politicians and economists:
Were the policy-makers able to ’learn to learn’, i.e. did they take into consideration the
changed conditions … in their policy reactions? Did they grasp the advantages of continually
revising their view of the goals and instruments of stabilization policy and of developing the
capacity to look forward? The answer must be a negative one.xxxvii
Jonung’s evaluation of the economists’ learning process was more positive:
The time of learning for economists was prior to the comparable point in time for the political
system. There were two reasons why economists were generally the first to formulate new
alternatives. First, they were not bound by political obligations and political programs. They
12
could present their viewpoints more freely than politicians. Secondly, university economists
participated in the traditional academic learning process constantly testing and questioning
established theories and interpretations.xxxviii
On the whole, I think that here Jonung was rather unfair to the politicians. As
seen above, sometimes they adopted (and implemented) new ideas earlier than
the academic economists. Sometimes they hesitated to accept the dominating
ideas in academia and sometimes they had good reasons for this.
Lindvall writes about the same period as Jonung:
the fact that the shift to low inflation policies occurred approximately ten years after
Keynesianism was abandoned strongly suggests that expert ideas have had little or no impact
on the objectives of economic policy in Sweden.xxxix
You could also put it this way: Swedish politicians for a long time refused to
accept monetarism and they abandoned full employment as the most important
goal for economic policies later than politicians in most other countries.
Lindvall also writes more generally about the influence of expert ideas on
economic policies:
More generally, the article claims that expert ideas influence the methods governments use
but not the goals they pursue.xl
Certainly this is the politically correct division of labor in mainstream
economics. But I am not sure if this is always the case, at least not in Sweden.
Many professional academic economists here have expressed strong opinions on
goals for economic policies - economic growth and economic efficiency are
most common - while politicians and politically active economists often
invented methods to reach goals themselves, for example public works or wage
earners funds.
My experience from my life in both camps is that both politicians and
economists have ideas about what should be done and how it should be done.
Politicians often decide what they want to do first, then they look for an
economist expressing opinions compatible with this and then they use those
opinions in their rhetoric in order to persuade other politicians and the public
opinion.xli
To take a recent example: In the social democratic alternative budget from
October 2009, Lars Calmfors was quoted when he said that the government
should have a more expansive fiscal policy, but not when he said that the job tax
13
deduction and the lower unemployment benefits had certain positive effect on
employment.xlii
It is too early to make historical assessments of recent decades. But my own
preliminary opinion is that in Sweden during the last 80 years, initiatives to
change policies more frequently came from politicians than from academic
professional economists. I have tried to illustrate the mutual influence between
Swedish politicians and economists in this diagram:
”Pure” academic economists
(Wicksell, Cassel, Lundberg,
Lindbeck, Jonung, Calmfors)
Economists who are also politicians
(Bagge, Ohlin, Myrdal, Feldt, Borg) or
working for politicians (Meidner)
Politicians who are not educated in
economics (Wigforss, Sträng, Persson)
Changes in Swedish
economy
Global economic change
How representative is Sweden?
Of course my Swedish examples cannot “prove” that the economists followed
the politicians rather than the other way around, as Keynes once claimed. Also
my reader can rightfully ask: How representative is Sweden?
Few speak or understand Swedish. We always belonged to the intellectual
periphery of the western world. We imported ideas from other countries and
adapted them to suit our Swedish “middle way model”. We were like
“butterflies fluttering between the different international schools of thought”,
taking from each what we felt useable.xliii
When “nationalekonomi” (our term for economics) was founded with separate
academic institutions in the beginning of the 20th century, the German influences
dominated. Between the wars, Britain with Keynes and a “scientific field that is
organized around the authority of elite institutions and personalities” took over
as number one. And since 1945, USA with Paul Samuelson’s Economics and
14
“an economics profession that is profoundly rooted in the academic world” has
been the leading exporter of economic ideas to Sweden. xliv
Since our academic, administrative and political elites were small, most of them
had personal contacts with each other. Another distinctive feature of our
economics profession is that many leading Swedish economists either were
politicians or civil servants themselves. Gösta Bagge was leader of the
Conservative party (1935 – 1944) and Minister of Education, Bertil Ohlin was
leader of the Liberal party (1944 – 1967). Gunnar Myrdal was Social
Democratic Minister of Trade (1945-47). All three of them were also economics
professors. Dag Hammarskjöld was also a professional economist, working for
the government before he became the UN general secretary. Almost every
leading economist in Sweden was also a member of different government or
parliamentary expert committees. They also wrote in the biggest newspapers
about actual political and economic matters.
Vito Tanzi writes that the theory of fiscal policy owes much to northern
European economists such as Jan Tinbergen, Bent Hansen, Leif Johansen. He
relates this to the fact that those small countries had a fairly homogeneous
populations and low Gini coefficients. In the Swedish case, he might have added
the Saltsjöbaden agreement and the spirit of mutual trust and class compromise.
The assumptions of the theory of fiscal policy – the government as a single
“nerve center” to take one example - were unrealistic also here in Scandinavia,
but they certainly were closer to reality compared to countries like Italy. Tanzi
also refers to the ”positive theory of fiscal policy”, in which Sweden with our
proportional elections is predicted to “tilt the composition of public spending
toward programs benefiting large groups in the population”.xlv
All the above mentioned factors combined with the fact that Sweden had peace
for more than 200 years, explains why political differences in Sweden were
relatively small. Swedish politicians took smaller political risks when they
changed their policies and were more ready to act in acute situations without
being fettered by strong ideological or theoretical principles compared to their
colleagues abroad.xlvi
But even so, I dare say that Sweden is not the only country where the role of
politicians in the history of economic thought have been undervalued by
economists.
A primitive theory of politicians and economists behavior
From where do politicians get their ideas to change policies if they do not get
them from the economists? One possible answer is that politicians are forced to
create new ideas when their material surrounding change. When their ideologies
15
meet brutal realities and other ideologies in international political bodies, in
governments or in parliamentary committees, they have to try to consider all
aspects of reality regardless if they like it or not. Often they have to act
intuitively without knowing most of the relevant facts and without
understanding what is really happening.
By contrast, the professional economist tends to create a simplified model of the
politicians – a Jesus figure in welfare economics or a pure egoist in public
choice – and so they miss the complexity in the political process of “muddling
through”. Some economists even express a general contempt for politicians and
political parties. Keynes is a telling example. In a letter to the prime minister he
contrasted his own faith in the “scientific spirit” as opposed to the “sterility of
the party attitude”.xlvii
This attitude together with an unnatural division of labor between economists
and political scientists, contributes to the unrealistic modeling of the political
economic process. As Jessica Lindvert express it: Economists are seldom
interested in how politics works in reality.xlviii
Most economists see their profession as a “higher” sort of activity than politics.
Or as Massimo Augello and Marco Guidi puts it:
The real distinction was widely felt to lie between the science of political economy (positive
or normative) and the art of economy, delegated to politicians and subordinated, depending on
the point of view, either to ‘higher maxims’ or ‘sinister interests’.xlix
I try to be a historical materialist and so I believe that change of policies most
often can be seen as responses to changes in material economic conditions. For
example the shift from Keynesianism to Monetarism was mainly a result of
globalized financial markets after the collapse of the Bretton-Woods system, not
a result of the production of ideology in the Chicago School. So in my opinion
Mark Blyth – and even more so some of my friends among Swedish left wing
politicians or journalists – give a vastly exaggerated role to the right wing and
capitalist sponsored think-tanks for the paradigmatic shift in the 1980s and
1990s. Also now neokeynesian economists are accorded too big a role compared
to the politicians in the handling of the 2008/09 financial crisis.
But of course the relations between changes in the economic base and in
political and economic decisions and ideas are dialectical if the reader permits
me to use terms from the Marxist (or Hegelian) tradition. Also the mutual
influences between politicians and economists in the forming of economic
policies and ideas are dialectical. But it is my impression that economic
16
politicians and economists working within political institutions not only in
Sweden are somewhat more influential than their purely academic colleagues.
Augello Massimo & Guidi Marco (2001) The spread of Political Economy and
the Professionalisation of Economists Routledge
Bentzel Ragnar, Lundberg Erik, Myhrman Johan, Rydén Bengt,
Söderström Hans Tson (1980) Stabiliseringspolitik för 80-talet SNS
Bergström Villy (1992) ”Party program and economic policy, the social
democrats in government” in Creating Social Democracy – A century of the
social democratic Labor party in Sweden Misgeld Klaus, Molin Karl, Åmark
Klas (editors) The Pennsylvania State University Press (translation from
Swedish original 1988)
Blyth Mark (2001) “The transformation of the Swedish model: Economic Ideas,
Distributional Conflict, and Institutional Change” World Politics 54:1 (October):
1-26
Boréus Kristina (1997) “The shift to the right: Neo-liberalism in argumentation
and language in the Swedish public debate since 1969” European Journal of
Political Research vol 31: 257–286
http://www.springerlink.com/content/yv1eu4y58yq7rwv5/fulltext.pdf
Calmfors Lars (2009) How have we handled the economic crisis and what do we
do now? The Félix Neubergh Lecture, University of Göteborg, December
Carlsson Benny (1993) “The long retreat: Gustav Cassel and Eli Heckscher on
the ‘new economics’ of the 1930s” in Lars Jonung (ed) Swedish Economic
Thought: Explorations and advances Routledge
Carlsson Ingvar (2003) Så tänkte jag Hjalmarsson & Högberg
Ekdahl Lars (2003) ”Mellan fackligt och politiskt dilemma. En bakgrund till
Rehn-Meidnermodellen” i Lennart Erixon (red) Den svenska modellens
ekonomiska politik Atlas Akademi
Erixon Lennart (2003) ”Den svenska modellens ekonomiska politik” i Lennart
Erixon (red) Den svenska modellens ekonomiska politik Atlas Akademi
Feldt Kjell-Olof (1991) Alla dessa dagar Norstedts
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Fernholm Tor (1960) ”Idéutveckling, ekonomisk politik och ekonomisk teori”
Ekonomisk Tidskrift: 161-184
Fourcade, Marion. (2009) Economists and Societies : Discipline and Profession
in the United States, Britain, and France, 1890s to 1990s. [Elektronisk resurs]
http://ezproxy.ub.gu.se/login?url=http://www.GU.eblib.com/EBLWeb/patron?ta
rget=patron&extendedid=P_483543_0&
Fregert Lars, Jonung Lars (2005) Makroekonomi (Textbook, second edition)
Studentlitteratur
Howson Susan & Winch Donald (1977) The Economic Advisory Council 1930 1939 – A Study in Economic Advice during depression and Recovery Cambridge
University Press
Jonung Lars (1999) ”Looking ahead through the Rear-view Mirror. Swedish
Stabilization Policy 1975-1995. A summary” English summary in Med
backspegeln som kompass ESO-rapport Ds 1999:9
Kærgård Niels & Sandelin Bo & Sæther Arild (2008) “Scandinavia, Economics
in”, in S. Durlauf and L. Blume (eds.), The New Palgrave Dictionary of
Economics Online, http://www.dictionaryofeconomics.com/dictionary.
Landgren Karl Gustav (1960) Den’Nya Ekonomien’ i Sverige. J.M. Keynes,
Ernst Wigforss, B.Ohlin och utvecklingen 1927-39 Dissertation
Almqvist&Wicksell
Lewin Leif (1967) Planhushållningsdebatten Almqvist&Wicksell
Lindbeck Assar (1968) Svensk Ekonomisk Politik Bonniers
Lindvall Johannes (2006) “The Politics of Purpose. Economic Policy in Sweden
after the Golden Age” Comparative Politics 38:3: 253–72
Lindvall Johannes (2009) ”The Real but Limited Influence of
Expert Ideas” World Politics 61:4 (October): 703-730
Lindvert Jessica (2006) Ihålig arbetsmarknadspolitik? Boréa
Lundberg Erik (1960) ”Om att begripa Keynes och att förstå andra. Några
marginalanteckningar till Landgrens avhandling” Ekonomisk Tidskrift:195-205
18
Lundberg Erik (1984) Kriserna och ekonomerna Liber
Lönnroth Johan (1985) Minervas Uggla – ekonomerna som maktens predikanter
Arbetarkultur
Lönnroth J (1988) "Ekonomernas rationella åsiktsbyten 1968-88" ekonomisk
debatt: 3: 193-202 http://www.ne.su.se/ed/pdf/16-3-jl.pdf
Lönnroth Johan (1993) Schamanerna – Om ekonomi som förgylld vardag Arena
Lönnroth Johan (2004) ”Den enfaldige politikern” ekonomisk debatt no 7: 6-20
http://www.ne.su.se/ed/pdf/32-7-jl.pdf
Lönnroth Johan (2011) “Political Economy Textbooks and Manuals and the
Origins/Roots of the Scandinavian Model” in Augello Massimo & Guidi Marco
(eds), The Economic Reader: Textbooks, Manuals and the Dissemination of the
Economic Sciences during the 19th and Early 20th Centuries Routledge
(forthcoming).
Meidner Rudolf (2003) ”Några tankar vid ett seminarium” i Lennart Erixon
(red) Den svenska modellens ekonomiska politik Atlas Akademi
Notermans Ton (2000) Money, Markets and the State – Social Democratic
Economic Policies since 1918 Cambridge University Press
Persson Göran (1997) Den som är satt i skuld är icke fri Atlas.
Persson Torsten & Tabellini Guido “Constitutional Rules and Fiscal Policy
Outcomes” in American Economic Review March 2004
Persson-Tanimura Inga (1981) ”Non-interventionism i tiden” in Mats Lundahl
(ed) Ideologi, ekonomi och politik, tankar i tiden Rabén & Sjögren
Söderström Hans Tson (2004) ”Svensk Stabiliseringspolitik” in Bo Södersten &
Hans Tson Söderström (ed) Marknad och politik (sixth edition) SNS
Tanzi, Vito. (2006) Fiscal Policy: When Theory Collides with Reality. CEPS
Working Documents No. 246, 16 June 2006.
http://aei.pitt.edu/6717/01/1343_246.pdf
Tingsten Herbert (1941) Den svenska socialdemokratins idéutveckling del I (part
I) Tiden
19
Wigforss Ernst (1954) Minnen (part III) Tiden
Wigforss Ernst (1960) ”Den nya ekonomiska politiken” in Ekonomisk Tidskrift:
185-194
Åberg (2006) Berättelser från 1900-talet Atlantis
Noter
i
This text is prepared for the project “Economic Theories and Policies. A Historical Perspective (1945-2002)”,
intiated by professors Piero Bini and Fabio Masini in Rome. In this version I have extended the time perspective
to 1930-2010. Johannes Lindvall, Martin Ross - Peterson and Bo Sandelin gave me valuable advice before
and/or after this text was presented on a national meeting organized by the Arne Ryde foundation, in Lund 1.10
2010. At this occasion also my opponent Magnus Henreksen’s valuable critique made me revise the text on some
points. After that Deirdre Nansen McCloskey gave me some very important advice. She and Ross - Peterson has
also helped me with my English.
ii
Lundberg 1984 is a representative text
iii
Jonung (positive) and Blyth (negative) are two examples
iv
Lindvall is my example here
v
Landgren 1960 p 289. When I am uncertain of my English translation I also quote the Swedish original texts.
vi
Fernholm pp 181
vii
Lundberg 1960 p 195
viii
Wigforss 1960 p 192
ix
Ib p 193
x
Wigforss 1954 p 20
xi
Notermans p 4
xii
The Minerva’s owl metaphor is used by Fernholm and by myself in Lönnroth 1985
xiii
The two perspectives are from Tingsten (who takes them from Marx and Hegel) part I p 84-85. The ‘People’s
home’ was a concept used by the Swedish prime minster (1932-1946) Per Albin Hansson.
xiv
Quoted after Ekdahl p 24
xv
Quoted after Blyth’s translation p 6-7
xvi
Lindvert p 39
xvii
Meidner p 219
xviii
For the critique, see Lundberg 1984 p 110 & 119 and Lindbeck p 46 ff. Tanzi mentions Hansen together with
Leif Johansen and Jan Tinbergen as one of the North European economists who contributed to this theory
xix
Notermans p 3
xx
Åberg p 152 and 165
xxi
Ekonomisk debatt no 1 1973 p 65
xxii
Ib p 67
xxiii
Lindvall 2009 p 718
xxiv
Söderström p 109
xxv
Meidner confimed that he said so in a private conversation I had with him in the middle of the 1990s. Alas I
could not find/remember the dates he said it or confirmed it.
xxvi
Quoted after Bergström p 160-161
xxvii
See Feldt, Carlsson and Åberg
xxviii
This political paradigm shift will not be developed further here. It is described in more detail by Blyth,
Boréus, Carlsson, Feldt, Jonung, Lindvall 2006, 2009, Lundberg 1984, Lönnroth 1988, 1993, 2004, Persson,
Persson-Tanimura and Åberg.
xxix
Fregert, Jonung p 523
xxx
http://www.regeringen.se/content/1/c6/10/28/08/9bac7fd3.pdf p 16
xxxi
Svensk Finanspolitik 2008. A report published 9.5 2008.
http://www.finanspolitiskaradet.se/download/18.cd1771b11927f1f0c6800085452/Svensk+finanspolitik+2008.pd
f p 145 and 147. The Council consists of leading Scandinavian economists including two former leading
politicians.
xxxii
http://www.riksbank.se/templates/Page.aspx?id=28416. The board has six members.
xxxiii
http://www.riksbank.com/templates/Page.aspx?id=29000. Three members of the board wanted that the repo
rate should be held unchanged
20
xxxiv
http://www.regeringen.se/content/1/c6/11/16/79/bc7025e7.pdf p 4
Calmfors 2009
xxxvi
From a discussion at the Nationalekonomiska Föreningen (The Swedish Economists Association) 12.1
2010, published in ekonomisk debatt no 3 2010 p 72
xxxvii
Jonung p 297
xxxviii
Ib p 301
xxxix
Lindvall 2009 p 723-724
xl
Ib p 703
xli
After having listened to and talked with Deirdre Nansen McCloskey about her ideas about the role of rhetoric I
am convinced that this is an underrated factor in policy making.
xlii
Motion 2009/10:Fi260 av Mona Sahlin m.fl. (s)
xliii
The quotation is from Kærgård & Sandelin & Sæther. See also Lönnroth 2011, where the international
influences on Swedish economic thought are described
xliv
The quotations are from Fourcade p 9-10 and p 8 respectively
xlv
Persson & Tabellini p 25
xlvi
I was as vice chairman of the Left Party 1993 – 2003 and negotiator with the social democratic government of
eight budgets (1994 and 1998 – 2002) and as associate professor in economics also both politician and
professional economist - a very small potato in comparison with the names mentioned above, however. This can
be worth mentioning since the reader might rightfully suspect me of being biased in favor of politicians.
xlvii
Howson & Winch p 159
xlviii
Lindvert p 35
xlix
Augello & Guidi p 10
xxxv